Updated October 5, 2026. Quick answer: Yes. Arizona taxes trust income, and a trust is a resident trust when it is “a trust of which the fiduciary is a resident of Arizona”. A nonresident trust is taxed only on its Arizona-source income.
How Arizona treats trust income
| Item | What the documents say |
|---|---|
| Treatment | Arizona taxes the income of a trust that files its own return, using Form 141AZ. The source says: “every resident trust of this state”. The same section taxes a nonresident trust on income derived from sources within the state. |
| Who counts as a resident trust | The test is where the fiduciary lives, not where the grantor or beneficiaries live. If a trust has more than one fiduciary, one Arizona fiduciary is enough. The source says: “at least one of the fiduciaries is a resident of this state”. A corporate sole fiduciary makes the trust resident only if it administers the trust in Arizona. |
| Rate on trust income | For tax year 2025 the instructions apply one flat rate to Arizona taxable income. The source says: “Multiply line 16 by 2.5% and enter the result.” Statute section 43-1311 also prints a 2.5% rate for taxable years after the notice date it describes. |
| Distribution deduction | The 2025 instructions start a resident trust’s Arizona computation from federal taxable income. State adjustments are split between the trust and its beneficiaries by federal distributable net income. The source says: “respective shares of federal distributable net income”. If there is no federal distributable net income, the split follows each beneficiary’s share of income distributed. |
| Nonresident trusts | A nonresident trust starts from the part of its federal taxable income that comes from Arizona sources. The source says: “derived from Arizona sources”. It completes Schedule A to compute that amount. |
| Return to file | The fiduciary files Form 141AZ if the trust has any Arizona taxable income or its gross income is $5,000 or more. Grantor trusts file an information return instead, and the grantor reports the income. |
A $10,000 example
A trust with $10,000 of taxable income that it keeps, rather than distributes, is taxed at 2.5%, computed as $10,000 x 2.5% = $250, before any deduction or exemption the state allows. Federal tax on the trust’s income still applies.
Income the trust passes out to a beneficiary is handled as the distribution deduction row above describes.
What changes in 2026
The latest documents read print no 2026 change to how trust income is taxed.
Federal rules
The state’s treatment sits on top of the federal one. The federal brackets a trust faces are laid out in trust tax brackets versus individual brackets, and capital gains that a trust keeps are covered in capital gains stay in the trust. The IRS explains the federal return in the About Form 1041 page.
Related: how Arizona taxes retirement income, whether Arizona taxes pensions, what a living trust costs in Arizona, trust income tax by state, and federal trust tax brackets.
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Answer againSources
- 2025 Arizona Fiduciary Income Tax Return Instructions, Form 141AZ (Arizona Department of Revenue): https://azdor.gov/sites/default/files/document/FORMS_FIDUCIARY_2025_141AZ_i.pdf
- A.R.S. 43-1301 Definitions; estates and trusts (Arizona Legislature): https://www.azleg.gov/ars/43/01301.htm
- A.R.S. 43-1311 Tax imposed on estates and trusts; rates (Arizona Legislature): https://www.azleg.gov/ars/43/01311.htm
- A.R.S. 43-1333 Fiduciary adjustment; allocation of shares (Arizona Legislature): https://www.azleg.gov/ars/43/01333.htm
Sources: the primary documents linked above, read on October 5, 2026. General information, not tax advice. Your own facts decide the outcome, and a preparer, the plan administrator or the agency itself is the right place to confirm anything consequential.